Questions of Federal Preemption

Freedom of Thought Six-Part Zoom Webinar Series: Part 5

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Several states are considering how to regulate the content moderation practices of social media and other tech platforms.  Some are focused primarily on protecting a wider range of expressible user viewpoints, while other states are concerned with strengthening incentives on platforms to engage in more aggressive moderation of potentially harmful speech.  Some states are also pursuing antitrust enforcement actions against some tech platforms. Such state level regulation of national – even global – platforms, raises the prospect of a patchwork of competing state regulatory frameworks.  

States have their own antitrust statutes that can differ from federal standards, and historically have had authority to regulate and set boundaries for material that cannot be published, such as libel, and content harmful to minors.  How should we think about state regulatory efforts when applied to technology platforms - is regulatory federalism likely to be beneficial, or should federal law preempt such efforts?  What role can or should the FCC play in preempting such state regulation?  How does the Dormant Commerce Clause affect state level efforts to regulate content and content moderation policies of social media within state borders?

Featuring:

  • Hon. Brendan Carr, Commissioner, Federal Communications Commission
  • Daniel Francis, Furman Fellow, New York University School of Law
  • Paul Watkins, Managing Director, Patomak Global Partners
  • Moderator: Hon. Gregory G. Katsas, Judge, United States Court of Appeals, D.C. Circuit 

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As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker.

 

Event Transcript

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Dean Reuter:  Welcome to Teleforum, a podcast of The Federalist Society's Practice Groups. I’m Dean Reuter, Vice President, General Counsel, and Director of Practice Groups at The Federalist Society. For exclusive access to live recordings of practice group teleforum calls, become a Federalist Society member today at fedsoc.org.

 

 

Alida Kass:  Welcome to our showcase discussion series on free speech and social media. I’m Alida Kass, Vice President for Strategic Initiatives at The Federalist Society and Director of the Freedom of Thought Project, a new initiative to address emerging challenges to freedom of thought, conscience, and expression.

 

      This afternoon, July 8th, we will be discussing how federal preemption and state innovation questions affect competing concerns over speech and content moderation on digital platforms and social media. This is the fifth in a six-part series on free speech and social media, all moderated by Judge Katsas. We also invite you to join us again two weeks from today, Thursday, July 22nd, at 3:00 p.m. Eastern for our final discussion.

 

      As always, please note that all expressions of opinion are those of the experts on today’s call. After our speakers give their opening remarks, we will turn to audience questions, time permitting. If you have a question, please enter it in the Q&A feature at the bottom of your screen.

 

      With that, I’d like to introduce our moderator for today’s panel. Judge Katsas was appointed to the D.C. Circuit in September 2017. After graduating from Harvard Law School, he served as a law clerk to Judge Edward Becker on the Third Circuit and to Justice Clarence Thomas on the Supreme Court. For 16 years, he practiced at Jones Day where he specialized in appellate and complex civil litigation. He has also served as Assistant Attorney General for the Civil Division of the Justice Department, as Acting Associate Attorney General, and as Deputy Counsel to the President. Before joining the bench, Judge Katsas argued more than 75 appeals, including 3 cases at the Supreme Court.

 

      I’m now going to turn this over to Judge Katsas to frame the discussion and introduce our panelists.  Judge Katsas, thank you for being with us today. The floor is yours.

     

Hon. Gregory Katsas:  Thank you. As Alida said, this is the fifth of a six-part series on free speech and social media. These panels are sponsored by The Federalist Society’s Freedom of Thought Project, which explores what seems to be an increasing trend to restrict and punish not only controversial speech but also controversial speakers.

 

      The traditional liberal view of speech was that the remedy for bad speech is good speech, and so if you expressed an unpopular view, you would expect to be subjected to criticism and correction in the free market of ideas. Today, it seems that unpopular speakers face a lot worse. If you express a politically unpopular view, you’re at risk for losing your job, being hounded out of a university, or losing access to various basic services, including, as relevant here, access to social media platforms.

 

      Our last two panels looked at specific efforts by governments to regulate and mitigate this kind of censorship by the big tech platforms like Facebook, Twitter, and Google through either common carrier regulation or antitrust. And we talked a lot about a couple of big cases that have been in the news, including an Ohio suit against Google Search services to have that declared a common carrier under Ohio common law, and a suit by a bunch of states against Facebook for monopolization based on their allegedly deceptive privacy practices.

 

      At some level, these suits were conventional in that they targeted the economic aspects of the behavior of a dominant player in some relevant market. But today, we might get into some more aggressive variations on this theme, which is state efforts to regulate political aspects of the content moderation of these platforms. One interesting example of that is a proposed Texas statute that would prohibit social medial platforms from engaging in viewpoint discrimination if the user of a service resides in Texas and the communication is stored or received in Texas.

 

      Our first two panelists look at sources of protection for the big tech platforms at the federal level, the two most obvious ones. One is the First Amendment, which affords some protection to these companies but also may tolerate common carrier-type regulation under the logic of Turner v. FCC, which upheld must-carry rules imposed on cable companies.

 

      The other source of federal protection against state regulation that we’ve already put on the table is Section 230 of the Communications Decency Act, which seems to give pretty broad immunity to platforms with regard to their decisions about what third party speech to either permit or to suppress. And 230, within a broad range, seems to preempt any state law liability either for decisions by the platforms to allow the third party speech or decisions by the platforms to censor the third party speech, or as they would put it, to moderate their content.

 

      Today, we’re going to have a broader focus. We’re going to look at some other possible sources of federal preemption. One of them is looking at what the FCC might do at the federal level either to itself regulate the content moderation and censorship practices of the platforms and/or to prevent the states from doing that.

 

      And another source of preemption we’ll talk about is the Dormant Commerce Clause of the Constitution, which is the doctrine that the Constitution, by authorizing the Congress to regulate interstate commerce, preempts state regulation that either discriminates against interstate commerce, applies extraterritorially, or unreasonably burdens interstate commerce.

 

      And we’re also going to talk a little bit more generally about a question that might have particular resonance to members of The Federalist Society, which is if we think that big tech censorship is a problem that some government should respond to, should that response happen at the federal level, or at the state level, or perhaps at both?

 

      We’ve got a great panel to address these issues, so let me briefly introduce them. Brendan Carr is a Commissioner on the Federal Communications Commission. He’s also served as General Counsel of the FCC, as the lead advisor to Chairman Ajit Pai on wireless issues, and as an attorney in the FCC’s General Counsels’ Office. Before joining the Commission, he practiced appellate and telecommunications law at Wiley Rein. He graduated from the Catholic University Law School and clerked for Judge Dennis Shedd on the U.S. Court of Appeals for the Fourth Circuit.

 

      Daniel Francis is a Furman Fellow and Emile Noel Fellow at the New York University School of Law where he writes about constitutional law, competition law, and antitrust. He previously served as a deputy director, associate director, and senior counsel at the Federal Trade Commission where he focused on antitrust enforcement in digital markets. For ten years, he practiced antitrust with two multi-national firms. He holds law degrees from Trinity College, Cambridge, from Harvard Law School, and from NYU.

 

      Paul Watkins is the Managing Director of Patomak Global Partners. He focuses on regulatory issues involving financial technology. Mr. Watkins founded the Office of Innovation at the Consumer Financial Protection Bureau, and he headed up the Civil Litigation Division of the Arizona Attorney General’s Office. Earlier in his career, he was an M&A associate at Simpson Thatcher and a securities litigation associate at Covington & Burling. He graduated from Harvard Law School, and he too clerked for Judge Shedd.

 

      Commissioner Carr, the floor is yours.

 

Hon. Brendan Carr:  Thank you much, Judge, for that very kind introduction. It’s great to join you and this esteemed panel to talk about these vitally important interests. And I’m reminded a bit by your opening remarks of a line from a New York Times editorial board member back in 1970, and he said that diversity of opinion is the lifeblood of our democracy.

 

      And back then, we were coming out of an era of groupthink, and there was a deep embrace, particularly on the intellectual left, of diversity of opinion and a range of ideas. That’s why in 1970 the modern day op-ed page launched in the pages of the New York Times because they wanted to promote ideas and perspectives that weren’t necessarily going to be reflected within the actual members of the editorial board.

 

      And I think you flash forward to today, and we’re on the back end of that trend, and there’s very much an illiberal trend back towards orthodox thinking. And it’s a bit of pendulum, but hopefully we can find a way as a cultural matter, not necessarily even as a legal matter, but to return to that era of embracing diversity of opinion.

 

      I think it does have a direct bearing on where we are with big tech today. I think there’s never been an industry where there’s been a wider gap between power on the one hand and accountability on the other. It’s just a chasm today. And regulators at the state and federal level for various different reasons are looking at trying to close that gap between power and accountability.

 

      And as this series has explored, there’s a lot, I think, that can be done on the Section 230 front. I think the FCC and have thought that the FCC has a role to play in fleshing out Section 230. It is in the Communications Act. I do think we have authority to interpret it. And I think courts have given too expansive of a reading of the language in Section 230, as Justice Thomas has pointed out in some of his statements.

 

      But I also think the debate now goes beyond Section 230. Even Section 230 reform, which I think is necessary, isn’t going to be sufficient to address a lot of the abuses of power that people on the political left and political right see taking place within various big tech platforms. And so I think 230 reform is a great starting point, and we absolutely have to do it, but we need to go beyond that. And I think that’s part of where this question of preemption comes in because I think, obviously, states are limited in what they can do in terms of directly interpreting Section 230, and limited might even be too weak of a phrase there.

 

      But I do think that states can step in and they can impose transparency obligations on these platforms. They can impose what I would describe as nondiscrimination or accountability standards, meaning if you’re going to apply a term of service, let’s say you don’t want violence on your platform, I think a state could step in and say, “Look, you’ve got to do that across the board. You can’t take down speech from the political left or the political right and not vice versa.”

 

      And I do think there’s a third level of this, which is affirmative antidiscrimination rules where you can look to public accommodation law, you can look to some civil rights laws and apply those to big tech, including prohibiting discrimination on race, gender, but including political ideology. And some state public accommodation laws, including D.C.’s, has that type of language today. And so I think that’s what we can look to import from a state law perspective into big tech. And there’s going to be some hurdles to doing that.

 

      And I think as we’ve talked about and you have talked about in previous sessions, the First Amendment is a strong argument that will be lodged by big tech, whether you do federal reform or state reform. And I think the answer to that is that there are a series of types of cases where the Supreme Court has recognized that you can regulate entities without infringing their free speech rights. For instance, obviously, we’ve got must carry, the Turner case. We’ve got Pruneyard cases.

 

      But it goes beyond that as well, just state defamation and tort law that is effectively the regulation of speech permissible under the First Amendment. We’ve got public interest obligations what we apply at the FCC on broadcasters. We have rules like this data roaming law that requires non-Title II carriers, operators, to carry the data traffic of other entities that’s outside completely of  the common carrier context. So I think there’s a lot of analogies and precedents that could be looked to in the First Amendment context, although, again, that’s sort of very, very interesting to me, but it’s a little beside this particular panel.

 

      The panel here, obviously, is focused on preemption. And when you do start to talk about state law regulation of content moderation practices, again, federal or state, you’re going to have First Amendment arguments. But uniquely, when you go to the state law approach, you’re going to have preemption arguments.

 

      And as I see it, big tech would likely lodge at least two main lines of argument for preemption of either some or all state law efforts to regulate content moderation. One, of course, is going to be Section 230. The other argument that I think they could lodge is there has been a general policy recognized by the FCC of nonregulation or deregulation when it comes to what we call information services, which arguably you could fit big tech within that definition. So I think those are two species of preemption claims that could be run by tech companies almost regardless of the specific form of state law regulation that’s imposed.

 

      In my perspective, though, I think there’s a very strong argument that state laws can survive preemption under both of those lines of attacks. And I’ll just maybe briefly flesh that out. First is Section 230. So Section 230(c)(1), at least as I interpret it, is a very broad provision that effectively says if you leave someone else’s speech up on your website, you’re not liable for that speech. The person who said it is liable. I don't think there’s much you can do, or frankly, as a policy matter, should do to disrupt that, and I think there would be strong preemption if you attempted to do that from state law.

 

      There’s a second provision of Section 230, though, that allows for the good faith -- the statutory term is any action voluntarily taken in good faith to restrict access to or availability of material. The statute goes on, but the upshot for me is I think that second provision of Section 230 is the provision that lawfully, under the right interpretation, should apply to decisions to take down speech, and therefore, you only have the 230 protection if you are doing it in good faith, which good faith is probably properly defined as a matter of federal law.

 

      But what that means is there is necessarily a category of takedowns that are bad faith. And so I would think that you could fit state law regulation of content moderation under that concept of bad faith takedowns, in which case I think you can survive a Section 230 preemption claim. In other words, Section 230 is not a provision that says content moderation in all of its forms is protected by this statute. At least as I interpret it, it’s if you leave speech up, you’re protected. No state law can refute that. But if you’re going to take it down, there is only 230 preemption or 230 protection if it is good faith within the meaning of the statute.

 

      So I think there is a fair amount of room at the state law level to regulate bad faith content moderation. And some of the ideas that I’ve put down in terms of antidiscrimination or takedowns that are inconsistent with your terms of service would be, in my view at least, potentially bad faith that would survive 230 preemption.

 

      The second vein of preemption that I mentioned is there is a line of FCC precedents that talk about deregulation or, depending on your perspective, nonregulation of information services, which, again, this could be considered part of. We have Title 2, Title 1 at the FCC. And very briefly, I’ll maybe just describe two lines of cases or two lines of precedents, and I’ll put a couple cases under each bucket to flesh it out.

 

      On the one hand, there is a case that very strongly recognizes this concept of a federal policy of nonregulation. And this is an Eighth Circuit cases that dealt with VoIP, voice over internet protocol. Minnesota tried to impose tariffing and other obligations on these VoIP providers. And the FCC stepped in and said, “No, we generally have a policy of nonregulation of VoIP. That has preemptive effect.” And the Eighth Circuit said, “Yep, you’re right. That decision not to regulate has preemptive effect and preempts this under state law.”

 

      The other case I’d put in that bucket of strong recognition of federal preemption and nonregulation is a recent case out of New York district court where New York State imposed a requirement that required internet providers to offer $15 a month low income services. And the district court there decided that that New York State law is now stayed based on a likelihood of success based on this concept of both conflict and field preemption that emanates from the Communications Act.

 

      And then third, the case I’d put in that bucket would be our own decision at the FCC in 2017 when we moved internet providers from a Title 2 regulation to Title 1. We said that decision to deregulate from Title 2 to Title 1 carries preemptive force and therefore preempts any state law to the contrary.

 

      Now, that portion of our 2017 decision was not upheld by the D.C. Circuit, and that leads me into that second category, which is courts that have taken a less expansive view of the deregulatory force of -- sorry, the preemptive force of deregulation. So one would be that 2019 D.C. Circuit case that said, “No, FCC, your decision to move something from Title 2 to Title 1, to deregulate, we don’t think that’s deserving of at least very weighty preemptive force.”

 

      A second statement or opinion I’d put in that bucket would be Justice Thomas in a separate VoIP case said that he thought the appropriate case the court should start to revisit the broad preemptive force that the Supreme Court has been given to decisions not to deregulate.

 

      And then finally, a third case I’d put in that vein would be there was a recent district court case in the Ninth Circuit, California, where California imposed net neutrality-like requirements on ISPs. And the district court there denied a state request by ISPs and basically said that no, the FCC’s decision to deregulate, to move from Title 2 to Title 1, does not preempt the California net neutrality laws. So some interesting lines of precedents.

 

      So I would argue that you could put all those together, and almost regardless of which way you come out either on the broader doctrinal question that Justice Thomas has teed up or otherwise, given that 230 has that idea of good faith, that there necessarily is room for states to regulate bad faith content moderation, and otherwise there’s not the same comprehensive federal regime at issue in traditional telephone services that would displace the feel of content moderation at the state and local level.

 

      So maybe I’ll stop there and leave some room for questions, but I think those are the two species of preemption claims that I think could be raised against state law antidiscrimination obligations and how I would think about the answers.

 

Hon. Gregory Katsas:  Thank you. Daniel, you’re up.

 

Daniel Francis:  Thank you, Judge. It’s a pleasure to be here today and to talk to you a little about my favorite corner of constitutional law. I want to talk a little bit about the space that the federal Constitution leaves for state platform regulation and just try to give a sense, at least in general terms, of where some of the most important constraints are and how our constitutional order and particularly its economic-facing provisions might react to this extraordinary wave of state regulatory efforts that we’re seeing.

 

      So just take a moment to set the scene, at least as I see it. We’ve seen over the last two decades a really extraordinary set of technological and commercial change throughout our economy. We’ve seen the rise of platform businesses that are often very diverse in lots of different ways that sometimes I think are suppressed by the label big tech. And it’s true that the platform businesses, what we think of as the digital economy, is radically changing everything from  retail to the way we get around in cities to operating systems in app stores. It seems to be a digital platform everywhere.

 

      And so over the last four or five years, as I think framing for this conversation, is an extraordinary and multi-directional backlash against some of the consequences of the rise of the platforms. And I think there’s a bipartisan consensus that we must do something, some kind of radical set of changes, regulatory, cultural, or otherwise. But I think there’s much less consensus about what exactly needs to be done and why.

 

      So we see now a wave of conversations, and in our federalist system, one of the benefits of the way that our political system is organized is local but particularly state governments are not just coequal but, on some occasions, preeminent participants in that discussion.

 

      So we’ve seen law enforcement efforts at the state level, a lot of antitrust suits led by state coalitions, including one as recently as yesterday. We’ve seen a lot of legislation, privacy legislation, and here in California, anti-censorship laws. You touched earlier, I think, on Texas, also Florida, taxation measures aimed at digital businesses. Maryland’s adopted a tax on digital advertising in ways that are a little unusual. And as we also mentioned earlier, the move in Ohio to designate Google as a public utility or a common carrier.

 

      So with states driving the conversation and framing many of the productive conflicts, what does the federal Constitution have to say about all of this? Well, I think the baseline is, of course, we are used to having a complicated regulatory landscape in this country, divergences in state tort law, common law, consumer protection statutes, environmental rules. There is a certain level of diversity and complexity that comes with any healthy federalism. That means individual states can set rules that suit their local populations. It means citizens and businesses can vote with their feet and find a place they like best. It preserves a lot of room for regulatory experimentation and learning. These are the classic benefits of life in a federal system.

 

      But there are limits to what the federal Constitution will tolerate. So on at least two occasions in our history, the emergence or the integrity of a national economic space has been pretty seriously jeopardized by divergent state regulation. One was under the Articles of Confederation in the 1780s when notoriously, states adopted a variety of inconsistent or conflicting tariffs and trade regulations that fueled a lot of political discontent.

 

      The other was in the last few decades of the 19th century when the national market was really emerging with railroads and telegraphs, but that system faced the prospect of death by a thousand cuts as individual states regulated terms and rates and discrimination by railroads in a way that really threatened the integrity of the whole system.

 

      Now, on both of those occasions, the federal Constitution came to the rescue. So in the first example, both commercial problems under the Articles of Confederation were a key driver of what led the colonies to come together, the states to come together at Philadelphia and enact not just the Constitution but the Constitution containing the Interstate Commerce Clause that we have today.

 

      Now, I know that as we sit here in 2021, we’re used to thinking of the Commerce Clause as a basis for affirmative federal legislation. But in fact, at least at the time of the Constitutional Convention, although evidence is pretty slender, the balance of evidence suggests that the focus was actually elsewhere. James Madison said a short time later that, in fact, the focus of the Commerce Clause was to prevent inconsistent state regulatory actions. And the Supreme Court in a series of decisions in the 19th century endorsed that understanding.

 

      In the second case, so towards the end of the 19th century with state regulations of railroads, it really prompted the Supreme Court to invigorate Dormant Commerce Clause law, so the idea that the Commerce Clause of its own force prevents certain kinds of regulations that interfere or unreasonably burden interstate commerce, particularly interstate networks, that are important to the national economy. Most famously in a decision called Wabash in 1886, the Supreme Court held that even intrastate, portions of interstate railroad groups, could not be regulated by the states. That prompted the creation of the first federal regulatory agency, the Interstate Commerce Commission, in 1887.

 

      In both of those cases, when the national market was really threatened, it was the Commerce Clause that stepped in. Now, it took a little while for the legal framework to settle down, but by the first few decades of the 20th century, it had done so. And the modern consensus became that it prohibits three things—Judge, exactly as you mentioned earlier—discrimination against out-of-staters, extraterritorial regulation where a state makes access to its market contingent on what you do or don’t do elsewhere, and unreasonable burden on interstate commerce.

 

      But something very funny happened over the last 40 years since about the 1980s. That model really declined. The courts continued to pay lip service to it, but what the court has really been focused on and sometimes more explicitly than others, is intentional protectionism. That’s where states prefer internal commerce over out of state or interstate commerce.

 

      And I think part of the reason for that decline is what we haven’t seen since the 1980s is a wave of state measures that really threaten to fragment or Balkanize the national market. It’s been fine, more or less, to focus on intentional protectionism. That, today, may be changing, and we may be seeing the first raindrops of a storm of legislation that threatens exactly the kind of thing that led to those great turns to the Commerce Clause in the past.

 

      To be sure, I want to be clear about the limits of what I’m suggesting. There is a lot of room in our Constitution for states to go their own way. State tort law for conduct that companies, even interstate companies, multinational companies, intentionally direct into a state, that is table state. State tax law for conduct that’s genuinely located in or attributable to apportionable to a particular state, absolutely fine. But I see in some of this modern recent wave of legislative and regulatory efforts real themes of extraterritoriality and of undue burden in exactly the ways that have animated Dormant Commerce Clause law in the past. And I want to just give two examples.

 

      The first one is the Maryland taxing measure on digital advertising. And I realize there’s about a dozen examples of different state regulatory efforts to this point, and we could talk about each of them. But the extraordinary thing about the Maryland digital advertising act is that it exerts Maryland’s taxing authority over all digital advertising services in the State of Maryland without defining whatever digital advertising is or even what “in the State of Maryland” is.

 

      And one way, perhaps the most natural way to read the statute, is that it takes conduct to be in the State of Maryland for regulatory purposes if somebody in Maryland can visit it on a website. And that’s a theme that runs through many of these state regulatory efforts. And that is a really remarkable reach on the Dorman Commerce Clause law.

 

      So it’s only been for the last three years that the Supreme Court has recognized that you have a sufficient nexus with an activity if you’re a state if somebody physically ships goods into your state. For a long time, that was not enough to create a taxable nexus. There was a longstanding Supreme Court case called Quill that said, “No, no, no, you have to have physical presence. You have to have premises.”

 

      About three years ago in a case called Wayfair, the Court said, “Well, all right. If you’re shipping goods into a state, that’s contact enough.” No way, no how, on that framework is the fact that a user in a state is able to visit your website sufficient contacts for this test. So it’s really a remarkable reach that’s common to many of these statutes but exemplified by Maryland.

 

      The only other one I want to mention is the Florida and Texas online censorship acts. I’m not well qualified to talk about the First Amendment law. I’ll set that aside, although the Florida law, obviously, has been preliminarily enjoined by federal district court.

 

      Both those measures—the Florida one has been passed, the Texas one is proposed—really impose pretty radical forced carriage obligations with respect to activity that has such minimal contacts with Florida and Texas, respectively, that on the most natural reading of those statutes, they apply as long as the relevant activity can just be viewed by a user in Texas. So if you’re a Michigan platform regulating speech by a Michigan user, then you fall within the reach of these pretty remarkable speech obligations in both statutes.

 

      So those are very broad. They go far beyond the kind of thing that we saw in the railroad context where at least states were focusing on the intrastate portion. So that’s pretty much all I wanted to say by way of overview. I really predict that while we’ve got away with a weakened Dormant Commerce Clause for the last 40 or 50 years, that may be ending. And I predict that we’ll see a turn now as business and other regulated entities look back at some of these older lines of case law, extraterritoriality, unreasonable burden, in a way that might reinvigorate the Dormant Commerce Clause, and perhaps that’s overdue.

 

Hon. Gregory Katsas:  Thank you. Paul?

 

Paul Watkins:  Well, thank you, Judge. And thank you so much to The Federalist Society for the chance to be part of this panel. My contribution to this discussion comes from having experience at the state level suing companies and then being in regulatory roles promoting innovation. And I think these two elements are key to what I expect red states to do in response going forward, lawsuits and promoting innovation.

 

      But I want to back up and talk about how I think red states find themselves in this circumstance where they’re having to sue all these platforms. And to a large extent, I think it’s because blue states, and a small number of blue states, have absolutely crushed their competitors in venture capital investment and developing emerging businesses.

 

      The numbers are really astounding. If you look at just California, California has received more than 50 percent of venture capital investment just about every year from 2010 to 2020. You throw in New York and Massachusetts, it’s over 70 percent. Some years, it’s close to 80 percent. The closest competitor is Texas. In 2010, Texas was getting around 5 percent of venture capital investment. Although their absolute numbers have increased, they have not kept pace. In 2020, their share of venture capital investment drops down to 2.7 percent.

 

      So these companies are developing within particular cultures, and they’re subject to primary regulators that reflect those cultures. And I think that shapes a lot of policy, particularly a few years ago when many companies said, “We’re going to depart from the Friedman doctrine of shareholder capitalism. We’re going to reflect the values of our stakeholders. We’re going to be more these extensions of policy.” Those policy preferences are drawn from that culture, from the geographic culture, from the regulatory culture.

 

      So I think it’s no surprise that red states look at this and say, “Hey, where did this come from? This doesn’t match what we’re hoping to see.” And they treat this extension of policy preferences from companies the same way they would treat an extension of policy preferences from the federal government, from another state, which is they respond with a bunch of lawsuits.

 

      Now, I want to talk a little bit about how some of these lawsuits could be modified a little bit, how some of these regulatory structures could be modified a little bit. But what I hope the states that are upset about this focus on is what they can do to do a much better job promoting innovation because that’s the sort of  activity that I think will lead to long-term solutions and will be broadly beneficial.

 

      Short-term, these lawsuits are going to be filed. We’ve talked a little bit about some of these laws and space that’s left under explicit preemption like Section 230 or under the Dormant Commerce Clause. I’m really surprised that more states haven’t utilized the consumer protection statutes. There’s a reference in the Florida law to these statutes, but then they impose their own fine structure. Texas doesn’t reference them at all. They create a separate fine structure.

 

      These are extremely powerful statutes where what Professor Francis was just talking about, the fact that you can see activity within a certain state, you can see an advertisement, that’s enough, you can sue over that. That’s a misrepresentation. In a state, you can change the way a company writes content that’s displayed in your state.

 

      We brought a lawsuit against a company that had an ad in the Super Bowl when the Arizona Cardinals were in the Super Bowl, so it was seen by just about everybody in the state. Each viewing of an ad is potentially a violation. You can fine each violation for up to $10,000. So you just put that together, and you have fines that are close to if not over $100 billion. And then you come in and say, “Well, if you buy now, you can settle for only tens of millions.” And states do this sort of thing all the time, and it’s extraordinarily powerful and extraordinarily effective. And I’m really surprised that it’s not being used in the structure.

 

      You can think -- departing a little bit, but some of you are familiar with a case called Arlene’s Flowers that came up through Washington, and this woman was selling flowers, and didn’t sell them for this wedding ceremony but sold them for other things and was fined by the state. And the penalties in that case came because violating Washington’s discrimination law is considered a per se violation of the consumer fraud statute, and that’s why the penalties were so large. And so tying a per se violation of a state consumer fraud statute to failing to act in good faith, it seems to me, would probably be a productive path for states to go down.

 

      But I think the real concern and the real productive activity here is encouraging innovation because we’re in this unique historical moment where these platforms have power, and the technology is moving in a direction that it’s unlikely that we will need these sorts of platforms long term. And of course, this is the way technology has proceeded in the past. You’re on top one decade, nobody needs your product the next decade.

 

      Through blockchain, through smart contracts, there are many folks who are trying to build competing social platforms where the users have more control over their own content, where they can be paid directly for their content. And what my fear is is that in the regulatory responses for the judicial decisions that we somehow solidify these platforms as necessary for the regulatory structure.

 

      And I think this is something the platforms would very much like to see. It’s why you see companies say, “Hey, we’re fine with reforming 230,” because they want to be needed. So whatever the states do, it’s essential that they do not take action that would require some sort of moderation by a platform, and then that states open the door for competitors.

 

      As an example of what not to do -- and the facts here just fit together so well that I think you couldn’t make it up. One of the big innovations, again, currently, is in blockchain, and within blockchain, cryptocurrency. And under the Trump administration and Trump’s SEC and the Secretary of the Treasury, there was very little guidance given to this industry, very little clarity with the exception of some speeches by Hester Peirce and maybe Brian Brooks.

 

      And in particular, there was an enforcement action brought by the SEC against a social media company that almost nobody had heard of at that time called Telegram. And Telegram was trying to launch a token that could be traded through its messenger service, and they did it according to a generally accepted framework. But the SEC brought enforcement action and said, “You can’t do that. We’re going to shut down your token offering.”

 

      Now, fast-forward one year. The Trumps are all kicked off of social media. What does Donald Trump Jr. say? “Go follow me on Telegram.” Well, Telegram would have been a much more viable competitor to Facebook if Trump’s SEC had simply let them have their offering, let them develop in a new direction, and compete on new ground with the incumbents. But if these folks who are upset about these social platforms are not willing to allow this competitive activity, then I think they’re going to really solidify the monopolies that are currently in place.

 

      So what I think the path is for states, again, that are upset about this is to coordinate, to use existing regulatory frameworks that have traditionally been allowed under preemption like consumer protection statutes to coordinate what they’re planning to do, which gives them joint market power, and then to jointly encourage innovation in all sorts of areas, in policy and a number of other areas so that innovators are moving into these states and so that these states jointly have market power within a country that I think will probably trend toward a bifurcated market.

 

      So those are my brief remarks, and I’ll turn it back to you, Judge, and look forward to continuing the conversation.

 

Hon. Gregory Katsas:  Great. Let me give each of our panelists maybe about two minutes to respond to anything that they heard from their co-panelists. Brendan?

 

Hon. Brendan Carr:  Thanks. I thought a lot of interesting discussion there. I don’t know that I have a direct response or rebuttal. One thing that I’ll touch on is I do think there’s been a lot of interest recently including flowing out of Justice Thomas’s recent statements that we should potentially classify big tech providers either as common carriers themselves or as places of public accommodation.

 

      And my view on that is what we really need to do is look to apply antidiscrimination obligations on  big tech. And I would say that common carriage and public accommodation law are precedents and past examples where we have applied some forms of antidiscrimination requirements on those types of entities. But it doesn’t necessarily flow from that that we need to classify big tech as either common carriers or places of public accommodation. Rather, we just take the core concepts of antidiscrimination applied there and bring them forward into these websites.

 

Hon. Gregory Katsas:  All right. Daniel?

 

Daniel Francis:  Thank you. I would have just a word or two by way of reaction to Commissioner Carr and to Mr. Watkins. To Commissioner Carr, two things. Thing number one, I absolutely agree with you, or I agree with what I take you to mean about common carriers. I think the economics of common carriers as that’s been traditionally understood are radically different from those that we associate with the digital platforms.

 

      So I often hear this idea that Facebook or Google or whoever else it might be, it’s exactly like railroads, it’s exactly like networks of the past. I think that’s directly wrong. I think what makes railroad economics distinctive, for example, is that competition in a certain sense doesn’t work. You’re always choosing between a monopoly which means monopoly prices backed by the state, or you allow network competition which forces prices down to variable costs, and it means that railroads go out of business. That’s what was happening in the 1880s. So I think the common carrier frame actually obscures a lot more than it actually reveals, given those economics obviously don’t apply to digital platforms today, particularly in light of product differentiation.

 

      But my question for you is this. I take the idea of bad faith to be central to your view of the right way forward. And I wonder if I could just invite you to say a little bit more about what that means and how we could identify it. So if a publisher or platform or otherwise genuinely believes that certain kinds of speech or viewpoints are pernicious or harmful, seditious, maybe uncongenial to their base or their social or religious mission, would it be bad faith to moderate on that basis? So it’s just not clear to me why that would be right.

 

      To Mr. Watkins, I strongly agree that the focus here has got to be looking for ways to sponsor competition to avoid a heavy-handed regulatory approach and instead create conditions for entry. I just want to push back very briefly on the idea that any regulation at all is kind of monopoly reinforcing. So it wasn’t clear to me why allowing cryptocurrency for an incipient social media network would enable that social media network to be more competitive in the provision of social media any more than allowing it or prohibiting it from providing any other product or service. It wasn’t clear to me why we see that as a piece of the platform monopoly problem in the antitrust sense.

 

      But otherwise, this has been great. Thank you.

 

Hon. Gregory Katsas:  Okay. Paul?

 

Paul Watkins:  Yeah, let me just respond to that. Thank you so much for the question, Professor. So it comes down to a phenomenon that we’re seeing throughout the economy around embedded finance, which is the benefit of being able to transact, to engage in commercial activity through one single portal. And you’ve seen the social media companies push into this pretty hard and pretty dramatically, Facebook wanting to compete with Amazon being a place to find goods and services and so forth.

 

      And when you have your own currency tied to that, there are real efficiencies there around taking that step into commerce. It also makes it very efficient for your users to be able to monetize that content because they can potentially charge -- they can sell -- there’s something called a non-fungible token that can show ownership around a particular digital representation. People can transact and give the right to particular posts or particular artwork.

 

      So there’s a lot of functionality there that could allow and insurgent to compete, and I think for an insurgent to come in, they will need something like that that’s new. And so I do think the regulators have to be mindful that they’re not preventing that sort of activity.

 

      I think it’s a particular area of concern if you look -- there was a speech by one of the CFTC commissioners -- I’m getting really into the weeds on blockchain here to answer your question, and I apologize for that. There are blockchain-based derivatives trades that are occurring outside of an exchange, and it’s really hard for the CFTC to regulate that because what the CFTC does is they regulate exchanges, and then they expect the exchanges to regulate the activity that occurs.

 

      And I think this is a common regulatory structure. You can see it in anti-money laundering and know your customer requirements. But regulators don’t impose all those things. They impose them on financial institutions, and then the financial institutions impose them on the customers. Well, if you don’t need the institution anymore and it’s just customers interacting directly, that can cause regulators to be very worried because they’ve all lost a lot of their authority because they’re depending on the platform.

 

      And so my fear here is that if folks come in and say for an effective marketplace of ideas, we need this very comprehensive regulatory structure that Facebook and Twitter and so forth is imposing on all the content, then the next generation could simply skip over the need for that sort of platform but would then be perceived as unlawful because the regulators would feel like the content was not sufficiently regulated. So that’s the backdrop that I think should cause some caution on the part of regulators.

 

      And then, Professor, if I can ask you a question, I know we’ve seen not necessarily in the social media context but within financial regulation, some of the New York regulators say, “Hey, we want you to either reduce or stop lending to energy companies if you’re a financial business doing business in New York.” And then I believe I saw some related commentary by Eugene Volokh on some recent lawsuits saying these lawsuits, I think by the former president, they’re a real stretch unless there were regulators actually directing companies to ban the president or saying, hey, this would be a good idea.

 

      I’m curious if you think there are certain facts that might be discovered involving regulatory regulators pressuring platforms that would then be a Dormant Commerce Clause violation going the other way where red states would say, “Hey, blue state regulators, you’re now trying to extend your policies into our state, and you’re doing it kind of informally and indirectly. But we’re upset about it, and we’re going to sue.” What sort of facts would fit that? I don't know if they exist or not.

 

Hon. Gregory Katsas:  All right. Daniel, why don’t you take that one, and then we’ll get back. There’s also a pending question for Brendan. So go ahead.

 

Daniel Francis:  Yeah, of course. Let me see if I can do this in 15 to 20 seconds. I don't know the details of that set of regulatory moves. I’d love to hear more about it. In principle, what the court would be looking for would be, number one, signs that New York was being protectionist, in some way favoring in-state activities in a way that doesn’t sound plausible.

 

      It’s not obvious to me -- so the touchstone corrects for territoriality. It’s not whether you’re doing something that has effects in other states. All state regulation does that. It’s whether you’re making market access conditional on something that happens wholly out of state, like I’m requiring, to borrow from a Seventh Circuit case from a few years ago, you can only sell your e-cigarettes in my state if you manufacture them in a way that I proscribe, or you can only operate your social network if you conduct out of state content moderation in a way that I proscribe, to use today’s example. So to the extent that kind of extraterritorial reach is going on, there could be a Dormant Commerce Clause angle for sure.

 

Hon. Gregory Katsas:  Okay. Brendan, bad faith. So editors of National Review genuinely believe that right-leaning speech is a good thing, and they limit access to their platform to contributors who share that view. Editors of The New Republic, same thing on the left. Doesn’t seem like bad faith, and it does seem like something we would want to affirmatively protect. So why is it any different when a platform genuinely believes that left wing speech is good speech, and they act on that view?

 

Hon. Brendan Carr:  Yeah. I think there’s a couple answers here. One is, in the main, the idea that I have put forward for state law regulation of transparency and antidiscrimination, nondiscrimination, would allow carveouts or maybe would only apply to what I would describe as general purpose websites, so places like Facebook, like Twitter, like YouTube. So if you are a specialized website and you’re very clear, “Hey, I have a political angle that I want to take, and I want to moderate consistent with that,” I think there can be room, even under my theory, to say, yeah, the antidiscrimination rule doesn’t apply to you.

 

      But in the main, where you hold yourself out as a general use platform, particularly, although maybe not exclusively, but particularly where you say, “Hey, what Facebook and Twitter and others do, for all the discrimination we do, we do not engage in partisan political takedowns.” Now, people can disagree with whether they actually do that in practice, but I think if you were to pass a law today that says, “Don’t moderate content based on political ideology,” Twitter or Facebook would say, “Well, that doesn’t pinch us because right now we don’t do that.”

 

      Now, I think you would need some pre-textuality type of look-behinds to get at what I would think would be political takedowns, but that would certainly leave room for specialized or websites that are very [inaudible 55:47] continue to do that and only apply this to general purpose.

 

      It’s not quite the same thing, I would say, as a telephone carrier or an ISP, but in terms of the spectrum of speech interest, I would say that they look -- they are on that side of the spectrum, probably a cable provider somewhat maybe to the -- you’ve got ISP and Telco on one end. You’ve got newspapers on the other end. Cable is here. I would say that these general use websites are somewhere in the cable realm as opposed to a newspaper or, as you would indicate, sort of an internet magazine or something.

 

Hon. Gregory Katsas:  Let’s talk about things that the FCC might do and building on that spectrum. And let’s talk about some of the history with the agency’s attempts to impose net neutrality and the history that’s in the Supreme Court and in our court.

 

      The D.C. Circuit has said that the Commission has a choice to treat broadband internet providers as either telecommunication services or information services. And my head kind of spins when I read those definitions and the dueling Thomas and Scalia opinions in Brand X over which is which. It turns out it’s a critically important distinction because whatever falls under Title 1 we have said can’t be regulated as common carrier, and whatever falls under Title 2, the Communications Act does regulate as a common carrier.

 

      I know you don’t now do this, but you have the discretion to treat the broadband providers as telecommunications services under Title 2 and common carrier. Is there any room to argue that you can do the same thing for the platforms, and if you can, is that an idea worth considering to impose on them net neutrality in the sense of a rule against viewpoint discrimination?

 

Hon. Brendan Carr:  Yes, it’s a good question. I think whether something is a Title 2 or Title 1 service, as you point out, has all kinds of interesting and sometimes circular definitional reasons. But one way to very much dumb it down is, are you operating as a dumb pipe? Obviously, there’s some economic considerations and others you can import as well. [Inaudible 58:47] pipe, or are you doing more than just being a dumb pipe?

 

      And there are certainly arguments that you can make that there are versions of what big tech is doing, although maybe not certainly all features of big tech, but certainly some that approach a transport type, dumb pipe type of a thing. And again, it’s not a position that I’m advocating for because I think to apply antidiscrimination requirements, which I think is what really matters, to big tech, you don’t need to sort of pound them into the square hole of common carriage or public accommodation.

 

      Those are examples of where we’ve applied antidiscrimination law with First Amendment principles and otherwise, but I think we just import those antidiscrimination requirements into big tech because also when you classify something under Title 2, you strip the Federal Trade Commission of jurisdiction over the entity. So there’s some negative externalities from that perspective as well.

 

Hon. Gregory Katsas:  Do you think you all have authority to do that under Title 1?

 

Hon. Brendan Carr:  Yeah. So Section 230 is in the Communications Act. Interestingly, it’s in Title 2 of the Communications Act. But I think we do have authority to interpret Section 230 to reorient the case law a little bit and say the courts have sort of conflated (c)1 and (c)2. They’ve given too much -- they’ve overread (c)1. (c)1 is limited about if you leave speech up, that’s great. You’re not responsible. (c)2 applies to takedowns. The case law isn’t there right now.

 

      I think we can to that at the FCC, and then we can issue either a declaratory ruling or rules, either way, and say here’s some guidance on the good faith/bad faith line that Congress chose to draw in the sand and include in 230. And pursuant to that, we can take action and define good faith/bad faith.

 

      Obviously, takedowns that are inconsistent with your terms of service are bad faith. I think treating like cases dissimilarly can be defined as bad faith. And the furthest degree, the one that would raise obviously the strongest arguments on the other side from a First Amendment perspective would be to say in bad faith is discriminating based on race, gender, political ideology.

 

      I think we can do that, but obviously, it’s gradations. Comply with terms of service, not a strong First Amendment argument, I don’t think. Treat like cases alike, maybe you have a First Amendment complaint there, but not particularly strong. And then what I think we should do as a policy matter, which is affirmative antidiscrimination, there’s going to be a stronger First Amendment argument. I think there’s obviously a path forward to win that case, but it’s a gradation.

 

Hon. Gregory Katsas:  Okay. Daniel, Paul, any thoughts? I know you’re not FCC lawyers, but any thoughts on this?

 

Daniel Francis:  Only to -- you read my mind, Commissioner Carr, as you were describing the carve-out from FTC jurisdiction under Section 5 of the FTC Act for common carrier, so another unintended consequence to some of the proposals to reclassify big tech or other platforms would have really significant consequences for the antitrust project, not least as the FTC has been in the lead on so much of the tech antitrust stuff in recent years.

 

Hon. Gregory Katsas:  Daniel, let’s talk about extraterritoriality for a minute. When I was in private practice, I did a lot of work on the federal statutory presumption against extraterritoriality. And it turns out, at least in that context, it’s very easy to specify the rule that statutes are presumed not to apply extraterritorially unless Congress clearly says so. But it turns out it’s actually very hard to figure out what counts as an extraterritorial application, and I’m sure you have analogous problems in dormant commerce context.

 

      Could you just speak a little more on how we would think about -- I’m looking at the Texas statute, and it appears limited to users who reside in the state, which is clearly some attempt to dealt with extraterritoriality. And then there’s an independent requirement for the expression has to be shared or received in this state.

 

      So what should be the touchstone? If Texas wants to regulate content moderation in Texas, is it that the users computer is located in Texas at the time of the use, or does it turn on where Facebook is? And is that even a meaningful question, given the way computer networks work? I imagine it probably doesn’t turn on whether electrons in the network flow through Texas, but how do we think of that, and what would be the appropriate Commerce Clause line between Texas managing what happens in Texas but not what happens in California?

 

Daniel Francis:  You’re exactly right to highlight the intransigence of the whole exercise, particularly in a digital part of the economy between drawing lines that are framed in physical territorial terms. So point number one would be it’s going to be an enormous mess, like regardless -- even on the most optimistic assumptions about the cases that are brought, the way that they’re briefed, and all the rest of it, there’s no way that this isn’t a miserable exercise for everybody involved sorting through the various claims on both sides of this. So let me just acknowledge that by way of starting.

 

      Second, I think what we’re talking about here, as with many discussions in the economic regulatory sphere, we can talk about strengths and weaknesses, levels of risk, levels of contact, rather than bright line rules. And so with that in mind, I think it’s fairly clear, or at least my view is reading the Texas, and in fact, the Florida, but the Texas statute too, the Texas bill, that it clearly reaches way too far.

 

      So for example, you’re right, of course, that a user is somebody in Texas, but the bill bites if, number one, it protects the user’s ability to receive the expression of another person. So you could be in a situation where somebody in Oregon is posting something online, there’s a content moderation decision made by a company in California or Washington state, New York state, about how that is treated. That activity falls within the reach of the Texas bill. So the fact that a Texas person can sit at their computer and reach out across the internet and connect with it brings it within the scope of Texas’s regulatory reach here.

 

      And obviously, that raises same -- I’m sorry. Go ahead, Judge.

 

Hon. Gregory Katsas:  Sorry. Just because it’s shared or received in Texas?

 

Daniel Francis:  So it’s because the user -- so you’re right that it’s the user who is Texas-based. But if you look at the operative prohibition on censorship, it’s the user’s ability to receive the expression of another person. So at least as I read it, that means that as long as there’s one person sitting in Texas who can find it on the internet, then it falls within the regulatory reach of the statute.

 

      And that is really remarkable, again, just to touch back to what we were talking about in the taxing context, the Supreme Court has only just accepted that there are sufficient contacts when you ship goods into a state without having an office and premises built up there. So this clearly goes beyond that. What it also does distinctively in a way that’s not going to be true of all platform or regulatory efforts by states is that it very sharply presents the opportunity for inconsistent, directly contradictory regulatory efforts by states.

 

      So it requires no imagination to imagine a statutory effort or even a common law cause of action in another state that would make somebody responsible for failing to engage in content moderation for republishing communications of a certain kind, including content that isn’t exempt to apply to Texas law. You can imagine the parade of horribles of the kind of communications we could be talking about.

 

      Another reason why I feel so confident is I think this would animate so much Dormant Commerce Clause concern is it very sharply raises the idea of conflicting legislation. So if I were to give kind of boiled off guidance to a state, I would say, number one, think very hard about your, I think you can call it jurisdictional connection. Use state tort law and tax law as your guide when conduct is knowingly directed at consumers in or entities in a state. That raises many fewer concerns.

 

      If what you really want to do is to create protected rights for citizens in your state, then, number one, it should be confined only to those citizens. There’s a very interesting Dormant Commerce Clause case earlier this year where the Sixth Circuit held that it did not violate the Dormant Commerce Clause for Kentucky to enact a price gouging law that only applied to sales to people in Kentucky.

 

      And what the court said is, “Look, as Amazon’s business is currently set up, this would really interfere with Amazon’s practice of setting the uniform national price.” But that’s just a feature of Amazon’s business model. It could very easily adjust its business over consumers in Kentucky see the Kentucky regulated price, and it doesn’t affect what’s going on elsewhere. So that kind of thing where it’s feasible both technically and commercially for a platform to comply with that law without it touching wholly out of state activities would be a huge bound forward.

 

      Another thing that is going to be pretty safe is notice and disclosure obligations, so state-specific labeling requirements or consumer notice requirements have been constitutional for a very long time. Arkansas in the sphere of platform regulation has just recently enacted a rule that launched third-party sellers on online marketplaces have to disclose their contact information as part of the experience on the marketplace, so the consumers know who they’re buying from. That kind of  notice obligation, which obviously is consistent with some of the data protection state regulation would seem as well is likely to be much less concerning under the Dormant Commerce Clause.

 

      So focusing on direct contact, staying away from wholly out of state interactions, taking notice or explanation style relief rather than creating these aggressive rights of actions, those would be the directions in which I’d encourage folks to move.

 

Hon. Gregory Katsas:  Brendan or Paul, it’s a pretty good case that regulation on the state level is going to be awfully messy for the reasons Daniel has laid out. To what extent does that counsel for handling this at the federal level, one uniform rule that everyone can coherently live under?

 

Paul Watkins:  I think there are lots of products that have variations at the state level, and I don't know why just because something is digital or its available online that it necessarily needs to be uniform. There are lots of providers. Again, if we’re analogizing to the utility context, there are lots of providers that operate more in some jurisdictions than others.

 

      And so I don’t necessarily think that this is a horrible outcome if a business decides we don’t like the way that -- some state comes out and they define unfair practices in a way that sort of lines up with what Commissioner Carr laid out, and a platform says, well, we don’t want to be held to that standard, so we’re not going to offer our product there. I don’t necessarily think that’s a horrible result. And again, states need to have the ability to regulate themselves.

 

Hon. Brendan Carr:  And I would say in the main, I think if we had federal regulation in this space, then, one, that would certainly decrease what I think is the need for public policy or for policy need for regulation at the state level. And it would certainly strengthen arguments for preemption. I don't know that it would completely eliminate either the need or the ability to consider the preemption doctrine for states to ask, but it would be a different circumstance.

 

      But again, I think that’s kind of the spot we find ourselves in is this wide gap between big tech power and accountability, and I think part of it is because they amassed power in what I would call blind spots for Republicans and Democrat lawmakers alike. I think on the left, there was an ideological sort of mind meld between a lot of Silicon Valley corporations and the Democrat party, and so there was sort of maybe a look the other way on the concentration of power.

 

      I think for Republicans, on the other hand, there was this what I would view as a sort of fundamentalist adherence to this idea that if a large corporation is doing it or wants to do it or wants to gain power, who are we as conservatives to say something? I think Republicans, conservatives are increasingly turning away from that view and becoming increasingly skeptical of concentrations of power.

 

      But regardless, I think it was that blind spot in lawmakers on the right and left that resulted in this massive concentration of power in Silicon Valley. And I think that’s why the need for action at the state and federal level again. But yeah, if there’s a federal response, decreases pressure and need for a policy response and would increase the arguments about preemption.

 

Hon. Gregory Katsas:  Okay. Last question I have is for Paul. The numbers you gave on blue states versus red states, pretty daunting. And you said, well, one way to counteract that is for the red states to band together and jointly act to acquire countervailing power. Is there any Compact Clause violation there? Have you thought about that? I don't know anything about the Compact Clause, so this may be a stupid question, but it strikes me if two states are forming an agreement to jointly regulate, that might be a concern.

 

Paul Watkins:  Yeah, if I can just respond to your question on federal preemption, again, my fear there, I see the only area where there is enough agreement to do something at the federal level is something that cements these platforms in a regulatory role and that cements their business model. And I think that would be a big mistake.

 

      To the compact question, I think there are a number of ways to do this without having a compact. Most of the challenges with compacts is when they’re versus the federal government, not necessarily when they’re versus other states. And there are a number of very successful compacts. Some are around insurance providing for reciprocal licensing and so forth.

 

      But states can handle this like bar admission. If you have a license in this state, then you can operate in this other state. States can get together and say, “Okay, we see that Uber and some of these platforms have this issue around independent contractors. We’re going to resolve that directly at the beginning.”

 

      There’s this huge gap. If you look at investment in Facebook are occurring in 2004. We don’t have data standards for about a decade. Investments in AI are occurring in 2011. We don’t have any AI efforts at the federal level until 2020. So there’s this decade where states can act quickly and form good policy and attract investment. And if they do that, I think they will be rewarded, and I think it would be a very productive area for them to focus.

 

Hon. Gregory Katsas:  Okay. I just received one question from the audience which I’ll lay out— we’re running over, but I’m told that that’s okay— which is California regulates emissions. This is probably an extraterritoriality question for Daniel. California regulates emissions in California. That seems formally not extraterritorial. And yet, the effect of that is to compel auto manufacturers to have a national standard because it’s just not feasible to have one set of cars that you sell for use in California and a different set elsewhere. So how is internet regulation any different?

 

Daniel Francis:  That’s a perfect example, and it’s a great one, of the system working the way it’s supposed to. So the dynamic you’ve just described is known, unsurprisingly in the federalism literature, as the California effect. And the idea is that even though California is appropriately tailoring its regulatory reach, focusing just as you describe on emissions in California, so it’s not attempting to say, “Well, because one of my citizens in California might visit or be virtually present in Massachusetts, I’m going to try to exert regulatory control over what’s going on in Massachusetts, particularly in a way that might conflict with Massachusetts law.”

 

      What California does is regulate in its own sphere, and then the glorious, complex, messy economics of federalism mean that there’s a series of competitive reactions to that, one of which might be that if your state that enacts a rule that doesn’t make sense or undermines a business case for doing something in a particular way in your state, you need to be ready for the state to say, “I’m sorry, I’m not going to do business under these terms.” That’s part of a healthy regulatory federalism.

 

      But another alternative is the state might say, “All right, that’s how I’m going to do business. And for reasons of scale, I’m going to do business that way nationally or even globally.” That kind of interaction between different regulatory systems, different jurisdictions, different private enterprises, that is part of the healthy economics of federalism, and it does show how states and even local government sometimes can really play a role in leading the regulatory conversation but can do it within the bounds that the Constitution lays out.

 

Hon. Gregory Katsas:  Okay. Another question along the same lines. On the Texas-like scheme, why can’t we think of the regulation -- can Texas simply regulate what shows up on computer screens in Texas? And that seems formally intrastate in the way that California emissions are formally intrastate.

 

Daniel Francis:  That’s a wonderful distillation of what will be one of the most important economic constitutional questions the Supreme Court settles at some point, I assume, in the next decade.

 

      If the answer to that question is yes, then two things will follow. Thing number one is that virtually every state in the Union can exercise regulatory jurisdiction over virtually every business in the Union. If that is sufficient to constitute a sufficient regulatory connection both to avoid the Dormant Commerce Clause and the Due Process Clause, which also places similar limitations for the same reason, then it dramatically sets a wide bound for a state jurisdiction.

 

      And number two, what will follow from that is a horrendous array of inconsistencies, conflicts. I am skeptical sometimes of the most hysterical versions of, “Oh, no, no. It’ll be impossible for business to comply, regulatory costs, etc., etc.” Costs of regulation are just part of living in a healthy, well-regulated, free market.

 

      But that prospect, the idea that state or even local regulatory jurisdiction would be thrown so far, that question is going to be called before the Supreme Court. I think it -- we talked earlier about the Wayfair decision. I think it is unlikely that the Court would agree that that is a healthy model for digital federalism. And I would be praying that the Court takes a more narrow, more tailored approach. But if I’m wrong, then it’s going to be an extraordinary time.

 

Hon. Gregory Katsas:  Okay. We are well over time. Unless Alida steps in right away, let me just give you all a brief chance to give any concluding thoughts you may have.

 

Hon. Brendan Carr:  I just want to express my thanks again, Judge, to you and to the fellow panelists. I really enjoyed the discussion. I think there’s interesting First Amendment, interesting preemption cases, and hopefully some of these issues will be joined because that will mean some initial state law action here.

 

Daniel Francis:  I would only add, in addition to my thanks to this group for a terrific conversation, we’re often used to thinking of messy constitutional litigation and interacting regulations as a bad thing. I think that’s not always true. These are some of the most important foundational questions about not just our regulatory system, but about our constitutional order bound between private and public power, federal and state, economic and social values. We’re going to learn a lot from watching these cases play out and being part of a national conversation about it. Just as we have today, I think we’re going to learn a lot. Thank you.

 

Hon. Gregory Katsas:  Paul, you get the last word.

 

Paul Watkins:  Well, thanks so much again, Judge. And I would just ask how far are we really from that scenario that you described of regulating what happens on the screen? If you look at California’s date protection law and how that effects cookies, if you look at different disclosures that are required to occur, maybe the difference here is that a number of states care about these things just as much as California does, and that is what’s going to cause the effects. But thank you again for the opportunity to participate.

 

Hon. Gregory Katsas:  Well, thank you all for a very lively, informative discussion. I enjoyed it very much. And I’ll turn things back to Alida.

 

Alida Kass:  Thanks so much, Judge, and our panelists, just a gripping and fascinating discussion. On behalf of The Federalist Society, I want to thank you all for your time and insight and vigorous and interesting discussion.

 

      I also want to thank our audience for joining this discussion. We welcome listener feedback by email at info@fedsoc.org. And we invite you to join us again two weeks from today, Thursday, July 22nd at 3:00 p.m. Eastern for the final gripping discussion in this series. As always, keep an eye on our website and emails for announcements about other upcoming teleforum calls and virtual events. Thank you all for joining us today. We are adjourned. 

 

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Dean Reuter:  Thank you for listening to this episode of Teleforum, a podcast of The Federalist Society’s Practice Groups. For more information about The Federalist Society, the practice groups, and to become a Federalist Society member, please visit our website at fedsoc.org.